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Free 2018 Employee Payroll Deductions Calculator

Use this calculator to help you determine the impact of changing your payroll deductions. You can enter your current payroll information and deductions, and then compare them to your proposed deductions. Try changing your tax withholding, filing status or retirement savings and let the payroll deduction calculator show you the impact on your take home pay. This calculator uses the withholding schedules, rules and rates from IRS Publication 15.

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Figuring Your Payroll Deductions

Beginning a new job with a new employer can be exciting, but sometimes receiving the first paycheck can be a shocker when one first sees the difference between salary and "take home pay." Since payroll deductions can take a massive chunk out of one's salary, it is important to understand them and do everything possible to maximize the benefits from them. Some deductions are mandated by law while others are optional for the employee.

Mandated Withholdings by Law

The most commonly found deductions that are mandated by law include:

Federal income tax withheld

Social Security tax withheld (a/k/a "FICA")

Medicare tax withheld

State income tax withheld

Local income tax withheld

Federal income tax withheld

Federal income tax is figured based upon information furnished by the employee on IRS Form W-4. From this form, the employer determines how to figure the employee's tax withholding based upon the tax withholding tables provided by the Internal Revenue Service.

Employees should complete W-4's with care. The more people claimed as exemptions on the W-4, the smaller the amount of tax withholdings. This may look great on the paycheck, but it may look rather bleak on the W-2 form when tax time rolls around.

There are certain instances where an employee may qualify to be exempt from federal taxes, however there are strict parameters for qualification of exemption and it is strongly recommended that advice is sought from a tax professional or the IRS before claiming tax-exempt status.

Social Security tax withheld

At the time of this writing (2017) Federal Law mandates that 6.2% of an employee's taxable wage must be withheld and paid to the government. To this, the employer is required to "match" the amount withheld from the employee's taxable wage and pay to the government as well. This means that a total of 12.4% is paid for each employee.

Medicare tax withheld

Very similar in the calculation as Social Security tax, Medicare deducts 1.45% of the employee's taxable earnings for payment to Medicare. To this, the employer must "match" 1.45% for a total payment of 2.90%.

State and local tax withheld

The amounts withheld for state and local income tax depends upon whether the applicable state and locality require payroll deduction of taxes and how the taxes are to be figured if so. Employees who wish more information on state and local taxes withheld should consult a tax professional or their company's payroll department.

Other payroll deductions that may come into play

Depending on company personnel policies, employees may be able to choose benefits that actually result in tax savings.

Flexible Spending Accounts

Also known as a Section 125 Cafeteria Plan, flexible spending accounts are designed to be offered by employers to employees who wish to participate. Flexible spending accounts allow employees to annually designate a dollar amount to be deducted from each paycheck to go into the plan for qualified purposes. The contributions are deducted on a pre-tax basis, making the employee's taxable income smaller, thus tax deductions are smaller.

One advantage of a flexible spending account is that the funds do not have to be in his or her account in order to be used. For instance, John Doe signed up for $1,000 to be withheld from his paychecks over the course of the year for his flexible spending account. As money is deducted from his paychecks, his flexible spending account balance grows. In February, he only has $100.00 in his account but he needs the full $1,000 for dental work. With his flexible spending account that is no problem. He can go ahead and pay his dental bill in full and let the balance in his fund "catch up."

One disadvantage of a flexible spending account is the "use it or lose it" rule. Unused funds left over at the end of the year are no longer accessible to the employee, although the IRS recently changed the law to allow a $2,000 carry over if employers wish to incorporate the appropriate clause into their plan.

Health savings accounts

Health savings accounts have been around for a while but became a household word after the passage of the Affordable Care Act.

When setting up as a payroll deduction within an employer's benefit plan, contributions to a health savings account may be a pre-tax deduction that also reduces taxable income and ensuing tax withholdings.

There is also no "use it or lose it" rule with an HSA. It is a regular deposit account and the funds belong to the employee until they are used up.

Employees can change their HSA contribution amounts at any time, or stop contributions if they wish. However, upon becoming eligible for Medicare, contributions must cease.

401(k) accounts

Many employers offer retirement plans, often referred to as "401(k)" plans to their employees. The benefits and structure of these plans vary from employer to employer, making it advisable to consult with the company HR department to see what options may be available.

Some employers pay a "matching" amount into employees' 401(k) accounts in addition to what employees contribute from their own earnings. Some also allow employees to borrow against their 401(k) funds.

Summing it all up

The bottom line is that employees who work hard for their money deserve to have their payroll deductions work hard for them as well. When beginning employment with a new company, it is always advisable to sit down with someone in the Human Resources Department and make sure that all deductions are understood, correct, and accounted for.